These comments are responses
to the statements listed below,
which were generated in regard to the B. Kristine JohnsonInterview of 01-16-2015.

State should do more to support
venture capital investment in promising startups

OVERVIEW

According to venture capitalist B. Kristine
Johnson, president of Affinity Capital Management in Minneapolis, the
State of Minnesota is not doing enough to encourage risk capital to
support startup companies at the front end. She says Minnesota is
falling behind, because other states are using state dollars to invest
in venture funds that back companies located in their own states. She
does not think, though, that the state should pick which industries
should get the investments. And she believes that larger companies in
Minnesota could also help make capital available to small startups.

Johnson notes that Minnesota companies
receive less than one percent (0.9 percent) of all venture capital
investments in the country. In 2013, that amounted to $270 million in
investment in Minnesota companies. She says there are fewer, perhaps
half as many, venture capital firms operating in Minnesota compared
with 12 years ago, reflecting a national trend.

She points out that, nationally,
venture-backed companies skew towards medical technology (a key area
for Minnesota), biotechnology, IT and technology. Technology includes
software, hardware, telecommunications and new consumer and enterprise
applications. 2013 data show that venture capital investment
nationally is going largely to California, Massachusetts, New York and
other big states associated with technology investing. Those top three
states accounted for 70 percent of the total national venture capital
investment of $29.5 billion in 2013.

Johnson believes state support of the
University of Minnesota is critical, since it's the state's only
research university. But she says the Legislature shouldn't decide
which areas of research the University should pursue.

Average response ratings shown below
are simply the mean of all readers’ zero-to-ten responses to the ideas
proposed and should not be considered an accurate reflection of a
scientifically structured poll.

To assist the Civic Caucus in planning
upcoming interviews, readers rated these statements about the topic on
a scale of 0 (strongly disagree) to 5 (neutral) to 10 (strongly
agree):

2. Further study warranted.
(7.5 average response)
It would be helpful to schedule additional interviews on this
topic.

Readers rated the following points discussed
during the meeting on a scale of 0 (strongly disagree) to 5 (neutral)
to 10 (strongly agree):

3. Venture capital important to economy.
(8.6 average response)
Venture capital—a term used to identify financial investment in
higher risk, startup companies—must be an important part of growing a
state's economy.

4. Minnesota at a disadvantage.
(7.6 average response)
But a concentration of venture capital firms and investments in
three states—California, New York and Massachusetts—places Minnesota
at a competitive disadvantage.

5. State must encourage venture capital.
(7.1 average response)
Because the state now has fewer venture capital firms than in
the past, Minnesota needs to do more to encourage risk capital, as
several other states are doing.

6. State shouldn't chose beneficiaries.
(9.2 average response)
The government would be ill advised to select which firms
should benefit from such state support.

7. Invest in MN-focused funds.
(5.4 average response)
To support promising new businesses in Minnesota, the state
should invest in venture capital funds that have demonstrated a
commitment to financing Minnesota startups.

Response Distribution:

Strongly disagree

Moderately disagree

Neutral

Moderately agree

Strongly agree

Total Responses

1. Usefulness of topic.

0%

0%

14%

50%

36%

14

2. Importance of further discussion.

0%

7%

20%

47%

27%

15

3. Venture capital important to economy.

0%

0%

13%

47%

40%

15

4. Minnesota at a disadvantage.

0%

7%

13%

53%

27%

15

5. State must encourage venture capital.

13%

7%

7%

40%

33%

15

6. State shouldn't chose beneficiaries.

0%

7%

7%

36%

50%

14

7. Invest in MN-focused funds.

13%

13%

20%

47%

7%

15

Individual Responses:

David Dillon (10) (10) (10) (10) (10) (10)
(7.5)

1. Usefulness of topic. Thanks for
spending more time and effort on economic issues. It is, after all,
how we all create the wealth and incomes that provide for our personal
and civic lives.

2. Importance of further discussion.
There is more to be said and done. Minnesota has a legacy of great
economic innovation and success from Honeywell, 3M, Medtronic, Control
Data, Target, General Mills, The Mayo Clinic, Hormel Foods and many
others. All of these examples, somehow, started here. Are the right
policies in place for there to be more of these success stories or are
we destined to be the next Ohio?

3. Venture capital important to economy.
Minnesota's future economic success will be defined by what we can
sell to others. Or, to put it another way, what we can "export"? It
won't be blockbuster movies; Hollywood has that down. Of course,
saying what it won't be is easy, they hard part is saying what it will
be. Don't try. Create an environment to encourage risk and
entrepreneurship, and then celebrate both the effort and the
successes.

4. Minnesota at a disadvantage. True.
Think differently and get to work, or be Detroit and Cleveland.

5. State must encourage venture capital.
True, keep up or fall behind. Lot's of folks think just getting money
is all that a start-up needs. That is far, far from the truth. Who
invests matters a lot. We want to be a place that can launch
successful companies to provide for global needs. It is a shame that
our best entrepreneurs think they are best served by going to other
cities to talk with potential capital partners.

7. Invest in MN-focused funds. Maybe. We
do need to compete. More importantly the state needs to create a
competitive environment in tax and law to encourage this important
activity.

Don Anderson (5) (5) (5) (7.5) (7.5) (7.5)
(10)

Bruce Lundeen (5) (7.5) (7.5) (7.5) (5) (10)
(2.5)

Anonymous (10) (10) (10) (10) (10) (2.5) (5)

1. Usefulness of topic. As an employee
of the State in the area of Economic Development, and working with
small business development, funding is a key component of success. Her
insights were very valuable for me.

Dennis Johnson (7.5) (2.5) (5) (2.5) (0)
(10) (7.5)

7. Invest in MN-focused funds. I think a
lot of venture capital money is misspent and misdirected. There are
plenty of incentives within a capitalist system to induce
inventiveness without big venture capital investment. The speaker
cites no statistics as to the impact of venture capital on invention.
I would rather see Minnesota succeed without this uncertain
fertilizer. "If you truly build a better mousetrap, the world will
beat a path to your door."

John W. Milton (7.5) (5) (7.5) (5) (2.5)
(10) (0)

7. Invest in MN-focused funds. I am more
concerned with (1) our inability to reduce income disparities; helping
the rich ones won't do a thing for this; (2) inadequacies in the
public school system, according to recent surveys; (3) drop-out rate
in higher education; (4) lack of funding for pre-school education for
all Minnesota 3-4 year olds.

Scott Halstead (10) (10) (10) (10) (10) (10)
(5)

2. Importance of further discussion.
Much of the credit for development of the medical industry in
Minnesota [goes to, and] was the direct result of, the computer
industry. The large computer firms’ engineers started many high
technology firms, many of which became very successful.

3. Venture capital important to economy.
Minnesota's tax structure is a major impediment in financing high-risk
startup companies. As wealthier business executives with the means to
invest retire to much tax friendlier states, they take their [money]
and time with them and don't wish to [be] considered a Minnesota
resident because of the claw-back conditions of the Department of
Revenue.

4. Minnesota at a disadvantage. Those
states have greater wealth for investment.

7. Invest in MN-focused funds. I don't
believe the state should be directly investing venture capital funds
[in] new businesses. We should be investing in U. of M. research,
perhaps [in] development of a research and development center/centers.
[We should] encourage investment and a tax structure for these higher
risk/reward new businesses and [a] tax structure that encourages older
adult Minnesotans to retain their Minnesota residence and [we should]
provide business guidance to these new businesses.

Mark Richie (na) (na) (na) (na) (na) (na) (na)

Great interview. This is the top challenge
to Minnesota's future well being.

Bill Kuisle (8) (10) (9) (7) (8) (19) (1)

The state should look at its tax structure
to see if there is a reason for lack of investment in the state. The
state's responsibility should be a fair and low tax system for all
venture capital. Creating a fund will only lead to someone picking
winners and losers. Creating a business climate that attracts
businesses through lower taxes and in less regulation will be fair to
turn investors and all future investors.

Chuck Lutz (9) (7) (9) (8) (8) (9) (9)

Peter Hennessey (na) (na) (na) (na) (na) (na)
(na)

You have got to be kidding. The state should
support venture capital investment? What's wrong with you people in
Minnesota? I think you'd serve your cause much better if you studied
the history of Silicon Valley, going back to Hewlett's and Packard's
garage, and follow the timeline of its development -- why it happened
there and nowhere else, at least at that time in history. Then try to
imitate that.

David Durenberger (na) (na) (na) (na) (na) (na)
(na)

I admire Kris and the contributions the
University of Minnesota and the medical device industry have made to
health care around the world and in Minnesota. The point, however, is
whether medical device technology (as opposed to all the other hi-tech
opportunity for venture capital money and public investment) is or
should be our future and the future of the University of Minnesota’s
healthcare and technology research capacity. The investment focus in
health care now and in the future is elsewhere than devices. And the
former R&D talents of Medtronic, Boston Scientific, St. Jude, or 3M
are now simply giant sales and marketing organizations acquiring and
pushing into price-fixed worldwide device pipelines, devices invented
anywhere. And you’ve plenty of folks who can tell you about it. Take a
trip out here to the city by the bay and environs and you’ll see them
at work. Obviously Kris has been doing this for some time.

50 years ago the University of Minnesota
Medical School was instrumental in creating new approaches to
restoring heart health, and out of those efforts rose the medical
device industry, of which Covidien (aka Medtronic) is the best and the
best known. But the 50-year ride is over as the venture capital
investment data can show you, as can people running hospital based
systems around the country and the world. Minnesota public investors,
unlike the private capital folks, have not sought to prepare
themselves well for this new future of health care.

The Minnesota Legislature invested $570
million in creating a destination city for the Mayo Clinic. Having
done that, much more will have to follow, starting with the so-called
Zip Train or hi-speed rail to get Mayo staff to Minneapolis’ vibrant
life style and their patients from MSP to Destination City. The
Governor wants to invest $30 million in the University of Minnesota
Medical School in order to tempt high tech medical talent to come
"North" and create research jobs. (Compare that with the Mayo
investment). California voters invested $2 billion of their tax money
starting five plus years ago into building the capacity to invent
solutions to currently unsolved medical problems. Come on out and take
a look at the new UCSF medical campus - and take in a Giants game; you
can walk to from the campus. My point: The rest of the world has
caught up to and passed Minnesota’s 1960’s med device lead quite some
time ago. Kris is investing now in a start-up that is manufacturing in
Uruguay. How many are operating in Ireland, etc.?

Four old former pols like Roger Moe, Dean
Johnson, Don Loeslie and me have been wondering why the future of
Minnesota’s economy, and its public investment in education and
research and jobs, might not focus on something that involves
absolutely the entire state: food, and related renewable resources.
Some of the biggest agricultural companies in the world (including
the biggest) are creating lots of jobs in Minneapolis-Saint Paul
and elsewhere in Minnesota. We thought to tie this into better health,
into greater investment in maybe 150 years of ag research at the
University of Minnesota (which is already making a difference all over
the world, but it could save the planet!) and into turning the
red/blue post election maps of Minnesota voters into 6 million purple
people.

Point being not that we’re necessarily
right; but that someone needs to take a look at what we do best in
this state, always have, and always will. Because that’s who we’ve
always been and [what] the world is also likely to need in the future.
We don’t have that much competition; it doesn’t take a billion dollar
new public investment. It takes a vision, a decision, and then the
private capital will go to work making a lot of it happen. If it were
more sleep apnea devices I’d be for med tech.

Wayne Jennings (10) (7) (9) (7) (8) (9) (5)

Larry Schluter (9) (9) (9) (8) (8) (8) (7)

She does not talk about what amount of
dollars would be necessary to accomplish this goal. We have a
legislature unwilling to put $1 million to other good projects.

Paul Hauge (9) (9) (8) (9) (9) (5) (7)

Bright Dornblaser (10) (8) (10) (8) (10)
(10) (8)

Tom Spitznagle (9) (7) (10) (10) (10) (10)
(7)

Kevin Edberg (7.5) (5) (10) (5) (0) (7.5)
(0)

4. Minnesota at a disadvantage. The
stated reason for investment in other places is that the capital is
going to tech sectors that are not particularly strong in Minnesota.
I'm not sure that places us at a disadvantage unless we're going to
try to grow sectors that are not particularly strong.

5. State must encourage venture capital.
The argument is that the State needs to provide capital to firms who
will put our money to work, (for a healthy fee, I presume) to help buy
down the risk of those who have capital but who are unwilling to place
all of it at risk. Someone needs to distinguish how placing public
capital at risk to aid the investments of those with capital provides
a unique benefit to Minnesota. What protections are there that firms
will repay the state with the kind of outputs and outcomes we desire?
It's a bad play. The fact that states with historically
under-performing economies (Indiana, Michigan, Ohio) are making such
investments is not a reason for Minnesota to join the fray; it's also
not likely a coincidence that all three of those states have
Republican governors.

6. State shouldn't chose beneficiaries.
We shouldn't be investing at all.

7. Invest in MN-focused funds. We should
invest in human capital and continue to do what has worked for us in
the past.

The Civic Caucusis a non-partisan,
tax-exempt educational organization. The Interview Group
includes persons of varying political persuasions,
reflecting years of leadership in politics and
business. Click here to see a short personal background of each.